Peterson v. USAA Life Insurance Co.

          ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

          CHRISTINE M. ARGUELLO UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Defendant USAA Life Insurance Company's Motion for Summary Judgment. (Doc. # 74.) Plaintiff filed a response (Doc. # 82) on June 6, 2018 and Defendant filed a reply (Doc. # 86) on June 20, 2018. Having thoroughly reviewed the underlying briefing, pertinent record, and applicable law, the Court grants Defendant's Motion for the following reasons.

         I. BACKGROUND

         In 2015, Theodore Bobkowski (“Decedent”) applied for a life insurance policy with Defendant USAA Life Insurance Company. (Doc. # 74 at 9.) Based on Decedent's answers in Defendant's application, Defendant agreed to issue him a $1 million, 20-year term life insurance policy under Defendant's “Preferred Ultra” risk class, which is the least expensive risk class that Defendant offers. (Id.) The policy became effective on September 21, 2015. (Id.) Decedent unexpectedly died on October 22, 2016, a little over a year after obtaining the policy. (Id. at 10.)

         Subsequently, Plaintiff, as the named beneficiary, submitted a claim to Defendant on the policy. (Doc. # 21 at 2.) However, because Decedent died within the policy's two-year contestability period, Defendant requested and obtained from Plaintiff a HIPAA release in order to review Decedent's medical records. (Doc. # 74 at 10.) Defendant then analyzed the records to determine whether Decedent's medical history was consistent with his responses in Defendant's application. (Id.)

         Defendant discovered that Decedent's application omitted numerous details of Decedent's medical history. (Id.) In particular, Defendant learned for the first time that Decedent had been diagnosed with Obstructive Sleep Apnea (OSA) in November 2012 during the first of two sleep study diagnostics which Decedent had not disclosed in his application. (Id. at 3, 10.) Under Defendant's underwriting guidelines, however, an applicant is not eligible for the Preferred Ultra risk class if the applicant has been diagnosed with OSA that has not been surgically resolved. (Id. at 10.)

         On January 10, 2017, Defendant denied Plaintiff's claim and refused to pay benefits on the grounds that Decedent materially misrepresented his medical history by failing to disclose his OSA diagnosis. (Id. at 11.) Thereafter, Plaintiff brought this suit in state court asserting claims against Defendant for breach of contract, bad faith breach of contract, and violation of the Colorado Consumer Protection Act (“CCPA”). (Doc. # 21 at 2.) Defendant removed the suit to federal court. (Doc. # 1.) In the instant motion, Defendant argues that it is entitled to summary judgment because it was justified in denying Plaintiff's claim on Decedent's life insurance policy and because there is a lack of evidence to substantiate Plaintiff's CCPA claim.

         II. ANALYSIS

         A. SUMMARY JUDGMENT STANDARD

         Summary judgment is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it is essential to the proper disposition of the claim under the relevant substantive law. Wright v. Abbot Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). A dispute is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, Okl., 118 F.3d 837, 839 (10th Cir. 1997). When reviewing motions for summary judgment, a court may not resolve issues of credibility, and must view the evidence in the light most favorable to the nonmoving party-including all reasonable inferences from that evidence. Id. However, conclusory statements based merely on conjecture, speculation, or subjective belief do not constitute competent summary judgment evidence. Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).

         The moving party bears the initial burden of demonstrating an absence of a genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In attempting to meet this standard, a movant who does not bear the ultimate burden of persuasion at trial does not need to disprove the other party's claims; rather, the movant need simply point the court to a lack of evidence for the other party on an essential element of that party's claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 644, 671 (10th Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).

         Once the movant meets its initial burden, the burden then shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 256 (1986). The nonmoving party may not simply rest upon its pleadings to satisfy this burden. Id. Rather, the nonmoving party must “set forth specific facts that would be admissible in evidence from which a rational trier of fact could find for the nonmoving party.” Adler, 144 F.3d at 671. “To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.” Id. Ultimately, the Court's inquiry on summary judgment is whether the facts and evidence identified by the parties present “a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson, 477 U.S. at 251-52.

         B. APPLICATION

         Plaintiff asserts three claims for relief against Defendant. Specifically, Plaintiff alleges: Defendant breached the life insurance contract into which Defendant entered with Decedent; Defendant's alleged breach of contract was in bad faith; and Defendant violated the Colorado Consumer Protection Act (“CCPA”) by engaging in deceptive trade practices. (Doc. # 12 at 3-5.) Defendant, by contrast, argues: Defendant's denial of Plaintiff's claim was proper because Decedent knowingly made material misrepresentations regarding his health; Defendant's denial of Plaintiff's claim was justified and thus not in bad faith; and Plaintiff's CCPA claim fails because Plaintiff has not met its burden of producing evidence to substantiate Plaintiff's allegations. (Doc. # 74 at 3.) The Court will address each of Defendant's arguments in turn.

         1. Defendant's Denial of Plaintiff's Life Insurance Claim

         Defendant's denial of Plaintiff's life insurance claim was justified because the Decedent made material misrepresentations about his health in his insurance application. Although an insurer may not cancel a policy to avoid a pre-cancelation loss, there are circumstances that allow insurers to “avoid” coverage after-the-fact. See Hollinger v. Mut. Benefit Life Ins. Co., 560 P.2d 824, 827 (Colo. 1977). In particular, an insurer's liability may be avoided when the insured concealed a material fact while completing an insurance application. Id.; Silver v. Colorado Cas. Ins. Co., 219 P.3d 324, 328 (Colo.App. 2009) cert. denied, No. 09SC309, 2009 WL 3534579 (Colo. Nov. 2, 2009). Specifically, the insurer must prove:

(1) the applicant made a false statement of fact or concealed a fact in his application for insurance; (2) the applicant knowingly made the false statement or knowingly concealed the fact; (3) the false statement of fact or the concealed fact materially affected either the acceptance of the risk or the hazard assumed by the insurer; (4) the insurer was ignorant of the false statement of fact or concealment of fact and is not chargeable with knowledge of the fact; (5) the insurer relied, to its detriment, on the false statement of fact or concealment of fact in issuing the policy.

Hollinger, 560 P.2d at 827 (emphasis added) (footnote omitted).^[1] However, an insurer's contractual obligations cannot be avoided if the insured's misrepresentation resulted from an ambiguous question on an insurance application. Id. at 824.

         Here, Defendant establishes that it detrimentally relied on material misrepresentations Decedent knowingly made on his insurance application. However, Plaintiff fails to establish that Decedent's misrepresentations were due to an ambiguous question on Defendant's insurance application. Therefore, there is no genuine dispute of fact and Defendant is entitled to summary judgment.

         a. Decedent concealed facts in his insurance application

         It is undisputed that Decedent was diagnosed with a medical condition known as Obstructive Sleep Apnea (“OSA”) in 2012. (Doc. # 74 at 3.) OSA is “a condition whereby people typically snore, [and] have some pausing or cessation of their breathing at night.” (Doc. # 74-14 at 25.) It is also undisputed that Decedent sought medical care for his OSA on multiple occasions. Specifically:

• Decedent underwent a sleep study in November 2012 which is a diagnostic test designed to detect disorders such as OSA (Doc. # 74 at 3) (the results of the study indicated that Decedent had moderate OSA);

• Decedent treated his OSA with a Continuous Positive Airway Pressure (“CPAP”) machine, which is a mask placed over the nose and mouth that forces air into the lungs (id. at 2);

• Decedent underwent a second sleep study in January 2013 to determine the amount of pressure from the CPAP machine that was necessary to prevent his airways from becoming obstructed during sleep (id. at 4);

• Decedent consulted a doctor regarding his sleep studies in ...